Health Care Reform Update – What do I need to know about October 1st?

We are pretty sure you have questions about the health care reform and how it will impact you and as your trusted advisors, we will pass along all the important information we can. Travis has completed the certification to offer both plans ON and OFF the healthcare market places.

Feel free to contact our office (816-254-6100) to set up an appointment if you would like to see how and when you might need to react to the new requirements. I know this email won’t answer all the questions, but hope it will help with some of the smaller ones.

What’s new?

As of January 1st, 2014 the following ACA (Affordable Care Act) provisions will kick in for those under 65 years old:

Community Rating

Compression of Age Bands

Coverage of Essential Benefits

Risk Pool Changes

New Taxes and Fees

What does this mean to you?

Community Rating – This concept removes the different factors that insurance companies use in the past to determine rates. For example there is no more rate difference between different genders. Historically young males were charged less than young females due to the childbearing years. Going forward everyone will be looked at by their age, sex will no longer play a factor in the rate an individual receives.

Compression of Age Bands – The new law limits the age rating bands to 3:1, whereas the oldest can not be more than three times as expensive as a 21-year-old. Historically there were up to 64 age bands where each age band received a different rate, and the older you got (increased the likelihood that you would use more services) the more expensive your policy got. This one provision, overnight will increase the rates of the young and lower the rates of the older brackets into the 3:1 ratio.

Coverage of Essential Benefits – There are 10 general categories of benefits that have been deemed essential for coverage going forward after 1/1/2014. Those categories are:

Maternity Care

Hospitalization

Rehabilitative & Habitative Services

Laboratory Services

Pediatric Services

Prescription Drugs

Mental & Behavioral Health Treatment

Ambulatory Patient Services

Preventive & Wellness Services

Emergency Services

Currently some of these services are not included in plans available today.

For example:

Children under the age of 19 – Pediatric Services includes vision and dental

Many individual plans currently do not cover Maternity care

Mental and Behavioral Health has typically been a limited benefit in the past

Side question we receive a lot is: Since there are additional coverages being added into our health plans going forward, will that increase the premium. The short common sense answer is yes, if you add more coverages the insurance company must collect more money to pay for those additional services.

Risk Pool Changes – Guranteed Issued – What do we mean by risk pool changes, well currently a company can deny an individual insurance application due to pre-existing conditions. Which means, the insurance company knows they will pay out more in claims on your behalf than what they will be able to collect from you in premiums. In the investment world this is considered a bad investment, where you pay more than you will get back in return.

Going forward, the companies can no longer ask health questions, which means no matter what your prior health was you can opt to purchase a policy no questions asked. Good news for those who have not been able to buy a policy outside of the state health pool (High Risk plans)

Take a minute to consider the effect this will have, before the companies would only insure those they felt like were less likely to use the benefits, the companies took a risk that those policy holders wouldn’t cost them much, in exchange for lower rates. Now the insurance companies know they will have a lot of people sign up for plans, in which they know ahead of time they will be paying out more than what you as a policy holder pays in. Still a bad investment right?

Well one portion of how insurance works just got thrown out the window (being able to take a risk on future possible losses) but the other portion is the only hope they have to stay in financially good shape to pay our claims and that is make the pool bigger. See there is this concept called the law of large numbers, the more people get into a pool, the better one can predict future losses and also spread out the risk over a larger group of people. This has been done in the employer market for some time, where group insurance spreads the risk out over all the employees in the office.

Because the insurance companies can no longer use your current health status as a deciding factor, now all they have to use is spreading the risk out over a larger number of people. And that is why we also have an individual mandate. With out everyone in the pool, only the few who need the financial assistance will use the benefit and soon the companies will run through the money they have and go out of business.

New Taxes and Fees –

Along with the new mandates, there are also some new taxes and fees that the insurance companies now have to pay based on the different plans. Since the insurance companies operate solely on the premiums they collect from you and I, the taxes and fees are coming out of our pockets, just built into the new premiums we must pay going forward. So to answer the question in your head, yes the taxes and fees will increase the premiums we pay a point or two going forward. Studies have shown the increase due to taxes and fees will be about 2% on average. For those plans participating inside the marketplaces, aka “exchanges”, the fee is estimated to be about 3.5% of the premiums.

As with all the healthcare reform information, this is subject to change, however this is a summary of our information at this time. If you would like to know what your options are, please do not hesitate to contact our office for an appointment at 816-254-6100.